Living a better and longer life is not a spectator sport but an on-the-field contest where the best players win big. Sure, there is some luck involved. But as with sports, the good players are prepared to take greatest advantage of their breaks. Winning is not some accidental outcome but the result of hard work and preparation.

In the game of life, an overwhelming and growing body of research finds that education is by far the most significant variable explaining who plays the game well and who doesn't. Within these broad findings, it turns out that financial literacy is likewise connected to better financial and investing decisions and the accumulation of larger amounts of wealth.

This near certainty is crucial in looking at the retirement challenges that individual Americans face. These individual stories--insufficient savings, poor investment choices, and weak retirement planning--have in turn become growing national issues.

The ongoing fights over Social Security benefits are hugely important in part because the failure of private retirement investing has left so many people largely or entirely reliant on Social Security to fund their later years. The program was never designed to play such a central role, but here we are. The inability of many seniors to set aside enough money to afford healthcare expenses likewise has raised the stakes in the debates over how to contain Medicare and Medicaid costs.

As a nation, our low financial IQ has driven big changes in retirement programs, aided by the growing recognition and acceptance that behavioral psychology is an effective key to spur people to make better financial decisions. In 401(k) and other retirement accounts, employees generally are now forced to set aside and productively invest retirement savings unless they "opt out" of such programs. Success rates have risen sharply from the days not so long ago when employees had to choose to "opt in" to such accounts.

While putting some retirement investment decisions on automatic pilot is better than going back to the way things used to be, it falls far short of the benefits people would receive if they had the financial smarts to effectively take control of their own retirement futures. There is a growing movement to boost financial literacy in school, but experts generally agree that we need to do a lot more.

In a recent study, aging and financial literacy experts tried to at least partially answer two key questions: How much of society's wealth inequality might be explained by differences in financial literacy, and what factors drive people to learn about finances during their lives? In their paper, "Optimal Financial Knowledge and Wealth Inequality," academics Annamaria Lusardi, Pierre-Carl Michaud, and Olivia S. Mitchell said that "a large portion of wealth inequality, over half, can be attributed to financial knowledge that helps people access a sophisticated [investing] technology generating higher returns."

They developed and tested a model of consumer behavior fueled by financial knowledge. "In the model, financial knowledge permits consumers to use more sophisticated financial products which can help them raise the return earned on financial assets," their paper said. "Individuals who wish to transfer resources over time by saving will benefit most from financial knowledge. Moreover, because of how the U.S. social insurance system works, better-educated individuals have the most to gain from investing in financial knowledge."

Looking at wealth in relation to overall educational achievements, they said, "As of age 65, the median high school dropout has accumulated less than half as much wealth compared to high school graduates ($61,500 versus $180,300), and college graduates have accumulated twice as much in retirement assets ($370,200) compared to high school graduates."

And they find that wealth inequality is particularly affected when people take steps to boost their financial knowledge and thus gain access to more sophisticated money-management and investing tools. "The impact of allowing consumers to access the sophisticated technology and earn higher expected returns is striking," they said. "Of all the explanations examined here for heterogeneity in wealth outcomes, financial knowledge accounts for more than half the cross-group wealth inequality."

While the development of default retirement investment choices has boosted retirement prospects for many employees, the study found more broadly that financial knowledge is actually being held back when people don't feel they have control over their financial welfare. "The fraction of the population which is rationally financially 'ignorant' depends on the generosity of the retirement system and the level of means-testing benefits," they observe.

In other words, people won't learn this stuff unless they see a personal benefit, and investing in financial knowledge is neither easy nor inexpensive. However, the researchers concluded, if people were told and believed there was a link between their financial knowledge and later prosperity, they would spend their time and money to learn more.

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